Oakley Wholesale Hardware and Supplies (OWHS) sells tools, lumber, and other remodeling supplies to commercial contractors. The company controller is compiling cash and other budget information for July, August, and September. On June 30, the company had inventories of $462,500. OWHS sells a wide variety of products, but for budgeting and inventory planning purposes, the company has developed a standard "unit" of inventory that reflects roughly the mix and purchase costs of the items found in inventory and expected sales volume. The inventory value of $462,500 reported above is based on these inventory units. Each inventory unit is assumed to have a purchase price from vendors (for planning purposes) of $25. This number is not expected to change in the next three months. The budget is to be based on the following assumptions: Each month’s sales are billed on the last day of the month. Customers are allowed a 3 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). The billings are collected as follows: 75 percent within the discount period, 15 percent by the end of the month, and 8 percent by the end of the following month. Two percent is uncollectible. Purchase data are as follows: For both purchases of inventory merchandise and selling, general, and administrative expenses, 70 percent is paid in the month purchased and the remainder in the following month. The number of units in each month’s ending inventory equals 90 percent of the next month’s units of sales. Selling, general, and administrative expenses, of which $8,000 is depreciation, equal 20 percent of the current month’s sales. Actual and projected sales follow: Dollars Units May $ 675,400 17,700 June 690,800 18,100 July 680,200 17,900 August 649,800 17,100 September 684,000 18,000 October 695,400 18,300 Required: Compute the budgeted inventory purchases in dollars for July. Compute the budgeted inventory purchases in dollars for August. Compute the budgeted cash collections during July. Compute the budgeted cash disbursements during August. Compute the budgeted number of units of inventory to be purchased during September.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Oakley Wholesale Hardware and Supplies (OWHS) sells tools, lumber, and other remodeling supplies to commercial contractors. The company controller is compiling cash and other budget information for July, August, and September. On June 30, the company had inventories of $462,500. OWHS sells a wide variety of products, but for budgeting and inventory planning purposes, the company has developed a standard "unit" of inventory that reflects roughly the mix and purchase costs of the items found in inventory and expected sales volume. The inventory value of $462,500 reported above is based on these inventory units. Each inventory unit is assumed to have a purchase price from vendors (for planning purposes) of $25. This number is not expected to change in the next three months. The budget is to be based on the following assumptions: Each month’s sales are billed on the last day of the month. Customers are allowed a 3 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). The billings are collected as follows: 75 percent within the discount period, 15 percent by the end of the month, and 8 percent by the end of the following month. Two percent is uncollectible. Purchase data are as follows: For both purchases of inventory merchandise and selling, general, and administrative expenses, 70 percent is paid in the month purchased and the remainder in the following month. The number of units in each month’s ending inventory equals 90 percent of the next month’s units of sales. Selling, general, and administrative expenses, of which $8,000 is
Required: Compute the budgeted inventory purchases in dollars for July. Compute the budgeted inventory purchases in dollars for August. Compute the budgeted cash collections during July. Compute the budgeted cash disbursements during August. Compute the budgeted number of units of inventory to be purchased during September.
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